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Any weakening of currency in Azerbaijan would be gradual

Azerbaijan is planning to abandon its currency peg to the dollar as the oil price tumble strains its energy-dependent economy, the Azerbaijani Central Bank's Governor Elman Rustamov told the Financial Times.

"It is critical to make some kind of corrections to fiscal and monetary policy," Rustamov said in an interview in Baku. "We consider that we should transit to a more flexible exchange rate regime and gradually we will transit to an inflation-targeting regime."

Rustamov further noted that 2015 is one of the most critical years for the Azerbaijani economy.

"The key goal is to diversify the economy, to transit to a new economic growth model, and to decrease the resource dependency," he said.

Rustamov also emphasized that any weakening of the currency would be gradual rather than sudden, saying that the Central Bank would take into account the interests of the population.

Rustamov said the Central Bank is planning to drop the fixed dollar exchange rate in favour of targeting a euro-dollar basket with a 20-30 percent weighting for the euro in line with Azerbaijan's trade.

"It would adopt a target for inflation of 5-7 percent, compared with annual inflation of 1.4 percent last year," he added.

Rustamov further said the Central Bank has spent about $1 billion of its reserves since the start of the year to defend the manat, he added, as nervous depositors converted their savings into dollars.

He said the Central Bank, together with the shift in exchange rate policy, was working on a range of monetary measures to stimulate the Azerbaijani economy, including buying mortgage-backed bonds, supporting lending to small and medium-sized businesses, and direct support to the banking sector.